STRENGTHS

WEAKNESSES

Dependence of the Finnish banking sector on the Swedish and Danish financial sectors, despite the return of a major institution in 2017

Ageing population

Risk assessment

Activity is slowing, but will remain solid

Growth will be resilient in 2019 despite cooler domestic demand. Household consumption is set to slow, but should still put in a dynamic performance, driven by the fall in unemployment (7.4% in September 2018) and the consequent rise in wages, against a backdrop of moderate inflation. Business investment is also expected to ease, while making a strong contribution to growth in a supportive environment featuring low interest rates and resilient domestic and external demand. In addition, the emergence of supply constraints in terms of equipment and labour will also promote investment.

After building permits peaked in 2018, residential construction will continue to support activity due to strong demand for apartments in urban centres, particularly in the Helsinki region, before slowing down by 2020.

Exports are expected to remain brisk thanks to gains made possible by the Competitiveness Pact – labour costs fell in real terms by 3.5% in 2017 – and strong performances by Finland’s main partners, Sweden and Germany. Tourism, focused around natural sites and the Northern Lights, will continue to grow thanks to inflows of tourists from Russia (number-one source) and China (35% increase in 2017). At the same time, imports will grow relatively less quickly, echoing domestic demand. As a result, trade should contribute positively to growth in 2019.

Current and public accounts almost in balance

Even though 2019 is an election year, the government will continue to pursue a prudent fiscal policy. After lowering income taxes between 2016 and 2018, in return for the austerity measures of the Competitiveness Pact (extended annual working hours, partial transfer of employer contributions to employee contributions, wage freezes), the government will introduce only minor tax measures in 2019, including reducing the vehicle tax and increasing the excise duty on tobacco. At the same time, as revenues increase thanks to the favourable economic situation, the deficit, which is already well below 3%, is expected to decline. In addition, after being postponed several times, reforms to public social and health services are expected to be approved in 2019 and will involve merging the existing entities to create an intermediate level of 18 “counties”, in a move that will ultimately generate savings estimated at €3 billion a year. Scheduled to come into force in 2021, these structural reforms aim to address the challenge posed by a rapidly ageing population to the social security system and public accounts. Against the backdrop of this prudent fiscal policy, public debt – which in 2018 fell below the threshold set by the European Stability and Growth Pact (60% of GDP) – will continue to decline.

With exports outstripping imports, the country will continue to enjoy a trade surplus, which is expected to improve in 2019. Exports will be driven in particular by the automotive sector, whose exports doubled between 2013 and 2017 to reach €4.8 billion (7% of the total), and by the wood and paper industry, the largest exporting sector, with 20% of the total. Despite tourism growth, the balance of services shows a recurring small deficit, as does the income balance, due to the repatriation of dividends by foreign investors. However, the current account is expected to show a surplus.

The outcome of the upcoming elections is uncertain, but the centre-left opposition has a slight lead

Although it has a tiny majority (104 seats out of 200), the governing coalition – led by Juha Sipilä’s Centre Party, with the support of the centre-right National Coalition Party and the Blue Reform Party, which emerged from the split with the far-right Finnish Party in June 2017 – will remain in power until the parliamentary elections in April 2019. However, with less than six months to go before the elections, polls show coalition members getting between 35% and 40% of the vote. The centre-left Social Democratic Party, led by former Minister of Economy Antti Rinne, would come out on top with 22% of the votes and be well-positioned to try to assemble a coalition with other parties such as the Left Alliance, the Green League (environmentalist) or the Swedish People’s Party (centre). However, uncertainty persists over the potential outcome and coalition combinations given how votes are fragmented across many parties.

The business environment is very favourable. The country is ranked 17th (out of 190) in the World Bank’s Doing Business 2019 report, thanks in particular to its remarkable performance in insolvency settlement (2nd in the world).

Last update : February 2019

Payment

Bills of exchange are not commonly used in Finland because they signal the supplier's distrust of the buyer. A bill of exchange primarily substantiates a claim and constitutes a valid acknowledgment of debt.

Cheques, also little used in domestic and international transactions, but only constitute acknowledgement of debt. However, cheques that are uncovered at the time of issue can result in the issuers being liable to criminal penalties. Moreover, as cheque collection takes a particularly long time in Finland (twenty days for domestic cheques or cheques drawn in European and Mediterranean coastal countries, 70 days for cheques drawn outside Europe), this payment method is not recommended.

Conversely, SWIFT bank transfers are increasingly used to settle domestic and international commercial transactions. Finns are familiar with this efficient method of payment. When using this instrument, sellers are advised to provide full and accurate bank details to facilitate timely payment, while it should not be forgotten that the transfer payment order will ultimately depend on the buyer's good faith. Banks in Finland have adopted the SEPA (Single Euro Payments Area) standards for EUR-denominated payments.

Debt collection

Amicable phase

The goal of the amicable phase is to reach a voluntary settlement between the creditor and debtor without begin legal proceedings. Finnish legislation obliges creditors to begin the amicable phase amicable phase via letters, followed up as necessary with a final demand for payment by recorded delivery or ordinary mail. This demand for payment asks the debtor to pay the outstanding principal increased by past-due interest as stipulated in the contract.

In the absence of an interest rate clause in the agreement, interest automatically accrues from the due date of the unpaid invoice at a rate equal to the Central Bank of Finland's (Suomen Pankki) six-monthly rate, calculated by reference to the European Central Bank’s refinancing rate, plus seven percentage points.

The Interest Act (Korkolaki) already required debtors to pay up within contractually agreed timeframes or become liable to interest penalties.

Since 2004, the ordinary statute of limitations for Finnish contract law is three years.

Legal proceedings

Fast-track proceedings

For clear and uncontested claims, creditors may use the fast-track procedure, resulting in an injunction to pay (suppea haastehakemus). This is a simple written procedure based on submission of whatever documents substantiate the claim (invoices, bills of exchange, acknowledgement of debt, etc.). The court sets a time limit of approximately two weeks to permit the defendant to either respond to or oppose the petition. In addition, this fast track procedure can also be initiated electronically for cases of undisputed claims. The presence of a lawyer, although commonplace, is not required for this type of action.

Ordinary proceedings

Ordinary legal action usually commences when amicable collection has failed. A written application for summons must be addressed to the registry of the District Court, which then serves the debtor with a Writ of Summons. The debtor is given approximately two weeks to file a defence.

During the preliminary hearing, the court bases its deliberations on the parties’ written submissions and supporting documentation. The court then convokes the litigants to hear their arguments and decide on the relevance of the evidence. During this preliminary phase, and with the judge’s assistance, it is possible for the litigants to resolve their dispute via mediation and subsequently protect their business relationship.

Where the dispute remains unresolved after this preliminary hearing, plenary proceedings are held before the court of first instance (Käräjäoikeus) comprising between one and three presiding judges, depending on the case’s complexity. During this hearing, the judge examines the submitted evidence and hears the parties’ witnesses. The litigants then state their final claims, before the judge delivers the ruling – generally within fourteen days.

The losing party is liable for all or part of the legal costs (depending on the judgement) incurred by the winning party. The average time required for obtaining a writ of execution is about twelve months. Undisputed claims in Finland can normally last from three to six months. Disputed claims and the subsequent legal proceedings can take up to a year.

Commercial cases are generally heard by civil courts, although a Market Court (Markkinaoikeus) located in Helsinki has been in operation as a single entity since 2002, following a merger of the Competition Council and the former Market Court.

Enforcement of a Court decision

A judgment is enforceable for fifteen years as soon as it becomes final. If the debtor fails to comply with the judgment, the creditor may have it enforced by a bailiff, who will try to obtain an instalment agreement with the debtor, or enforce it through a seizure of assets.

For foreign awards, since Finland is part of the European Union (EU), it has adopted enforcement mechanisms applicable to court decisions issued by other EU members, such as the EU Payment Order and the European Enforcement Order. For judgments issued by non-EU members, the issuing country must be part of a bilateral or multilateral agreement with Finland.

Insolvency proceedings

Out-of-Court proceedings

Finnish law provides no specific rules for out-of-court settlements. Negotiations between creditors and debtors are made informally. If an agreement is reached, it must still be validated by the court.

Restructuring proceedings

The goal of restructuring is to allow an insolvent company to remain operational through administration, with the view that if the company is able to continue its business, it will be able to repay a larger part of its debts than would have been possible in the case of bankruptcy of the company. The commencement of these proceedings triggers an automatic moratorium, providing the company with protection from its creditors.

The board of directors maintains its power of decision but the receiver is entitled to control certain aspects of the company’s operations, including the creation of new debts and overseeing transfers of ownership.

Liquidation

When debtors are unable to pay their debts when due and this inability is not temporary, they are placed into liquidation. Upon acceptance of a liquidation petition by the court, the debtor is declared bankrupt. A receiver is appointed, and a time limit is established for any creditors to present their claims. The receiver then establishes a proposed distribution scheme, whilst creditors supervise the selling of the estate and the distribution of the sales’ proceeds.